Adjusting your accounts to enhance sale value

Many business owners, particularly those in the lower-middle market, will often attempt to reduce their tax liability. This practice is commonplace throughout SMEs, a perk that enables business owners the ability to keep hold of more of what they earn.

Something many business owners do not realise, however, is that the same figures will be used to place a value on their business – significantly underestimating a Company’s potential in the eyes of a prospective purchaser.

For this reason, it is vital that the business’ owner, with the help of their M&A adviser, undertakes a process typically known as ‘recasting’. Recasting involves the removal or adjusting of items on financial statements that are unrelated to the business following a changing of hands.

The process can be a time consuming one, as the business owner and M&A adviser will dig as deep as possible to identify any expenses deemed nonrecurring, excessive or unnecessary.

So why is it done with an M&A adviser? Wouldn’t your accountant be able to do this? Chances are, they probably could. However, it isn’t something an accountant will do from day-to-day and their lack of experience in this area can often lead to missed opportunities and affecting the resulting valuation.

We would always recommend an M&A adviser who places values on businesses’ everyday (and who will have seen every possible add back time after time) to assist with this important area. This will provide you with the most accurate valuation of your business as possible, and hopefully, the best value achieved on exit.

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